Retail Goes Digitial As Best Buy Gobbles Up Napster for $127 million


During the chaos in the financial markets Monday, an M&A deal closed that had nothing to do with banks. Retailer Best Buy is buying online music site Napster Inc for about $127 million in an all-cash deal ($121 million, plus unvested Napster stock options).

Best Buy is paying $2.65 per share--almost twice where Napster's stock ended the week last week--but it's still not a huge chunk of change for the retailer. And its good news for Napster investors, getting a premium for the stock after reporting a $4.4 million loss last month.

With this acquisition Best Buy is acquiring Napster's 700,000 subscribers who pay a flat monthly fee of $15 for unlimited access to its music service and it recently launched an iTunes-style download store. Best Buy had been offering a Best Buy Music Store, powered by Rhapsody technology (Rhapsody is owned by RealNetworks.

This is clearly a play to expand beyond the electronics business, at a time when the sector is sure to be slowed by the pullback in consumer spending. Best Buy is likely to bundle digital music, or access to it, with its mobile handsets or computers. Buy a cell phone, get a free subscription to Napster? That could be a way to lure consumers.

This is all part of the digital music wars. Apple clearly dominates the market; its iPods dominating 73 percent of the MP3 market. This field will only get more competitive. In October Nokialaunches "Comes With Music" --UK buyers with Nokia phones get unlimited song downloads for one year that never expire. And there are rumors circulating that Sony Ericsson might launch a mobile music store with an unlimited download plan.

Can anyone really take on Apple?

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